#$1$ Case & Solution

Play Corporation $($PC$)$ is a company who specializes in designing and producing

fun at$-$home activities for players of all ages, and sells them at competitive and

affordable prices so anyone can afford them. PC was started in $2020$ by Peter and

Jane Play during the pandemic and had a huge demand for their products from

inception $2023.$

Revenues grew steadily between $2020-2023$ but, in its most recent operational year

ending June $30,2024,$ Peter and Jane saw gross revenues fall $40\%$ from prior year.

Play Corporation is financed through a $$500,000$ line of credit with Rich Bank and

Rich Bank requires Play Corporation to maintain a Current Ratio of $2$:$1,$ otherwise PC

will lose their ability to use the line of credit. Peter and Jane both come from

engineering backgrounds and have been struggling to keep up with the

bookkeeping and reporting requirements for PC$.$ Luckily, Peter$$s brother is a CPA and

has been performing quarterly reviews of PC$$s records as a favour.

$1)$ What are some factors that may impact the potential risk of material

misstatement?

$2)$ What are some procedures that Peter$$s brother can perform to test

the following:

$3)$ What are some reasons as to why PC is seeing a decline in sales?